That's nutty. Why would anyone do that?

You have 3/4" stubs on the water heater and 3/4" connections on the manifold... You are going to see a reduction in the flow rate when you have multiple hot water faucets on with 1/2" lines to the heater.

I'd get a support strap or bracket on the thermal expansion tank PRONTO. That little tank weighs quite a bit with water in it.

Is it your intention to only soften the water going to the WH?

[Is it your intention to only soften the water going to the WH?]
Not my intention. The softener is already hooked up to the whole house, but we are putting in a bypass for the outside hose bibs. I was concerned about the 3/4 being reduced to 1/2. I was not sure if they did that to reduce hot water flow to save on electric hot water?

I agree with JL: that expansion tank is NOT designed to be mounted on it's side like that without something to support it.

As Jake said "that's nutty". Bring both WH runs up to 3/4"

And again, I'd get a support strap or bracket on the thermal expansion tank PRONTO. That little tank weighs quite a bit with water in it.

OK, so if I replumb it, should I just move the expansion tank to the top after the elbow so it sits upright?

As Lazypup posted and here are installation instructions... http://media.wattswater.com/2915054.pdf

Read page #2 item #5.

Thanks for all the feedback. Great detailed photo Lazypup. So to say the least, he broke some codes? This is a brand new home, did they miss this stuff on final inspection? I did not see anything on the specs on the tank that said vertical or horiz. Not sure what you mean by "under the UPC both hot and cold must be insulated within 5'. Can you give me a little more info on that please?
Thanks again!

The Uniform Plumbing Code (UPC) requires the lines to be insulated...The international Residential Code) does not require it, although it is strongly suggested.

It would then depend upon where you live and which one of the national model codes that your state or local code is modelled after.

Now if we wanted to get really nit picking on the code, all of that PEX installation does not meet code. PEX must be protected from UV light and artificial light sources as well as sunlight produce UV, therefore if you can see the PEX without opening a covering of some sort, it is not installed correctly.

OK, so now another big question came up. If I have a well tank, do I even need the expansion tank?

You already have an expansion tank and it will do no harm so brace/support it and replace the 1/2" stuff with 3/4".

I leave the code questions and answers to lazypup.